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Board of Equalization
Business Tax and Fee Department
State of California
Memorandum
To
Date:
Mr. David Gau
Chief Deputy Director (MIC 101)
March 8, 2016
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From
Lynn Bartolo, Acting Deputy Director
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Business Tax and Fee Department (MIC 4 3)'
Subject
Board Meeting March 29-30, 2016
Item N: Administrative Agenda
Proposed Revisions to Compliance Policy and Procedures Manual (CPPM)
Chapters 2, 7, and 8
111
I am requesting approval to forward the attached revisions to the Board Proceedings Division to
be placed as consent items on the Administrative Agenda at the March 2016 meeting. The
following sections are being revised to incorporate current policies and procedures:
•
•
•
•
Chapter 2,
Chapter 7,
Chapter 7,
Chapter 8,
Section 230.070, IRIS Lead Source
Section 708.020, The Delinquency Process
Section 740.210, Partners in Bankruptcy
Section 820.091, Farm Equipment and Machinery
These revisions have been reviewed and approved by Business Tax and Fee Department
management, provided to Board Members, and posted on the Board's website at
http://www.boe.ca.gov/sutax/pmr.htm to solicit comments from interested parties.
No
comments were received from Board Members or other interested parties.
If you have any questions, please let me know or contact Ms. Susanne Buehler at
(916) 324-1825.
LB:rs
Attachment
Approved
STATE BOARD OF EQUALIZATION
BOARD APPROVED
Atlhe ~ O ~ M e e l l n g
Mr. David Gau
Chief Deputy Director
Joann RicJinfurld,Chlef
Board Proceedings Division
Item N3
03-30-16
Mr. David Gau
cc: (all with attachment) Mr. Wayne Mashihara (MIC 47) Ms. Susanne Buehler (MIC 92) Mr. Richard Parrott (MIC 57) Mr. Kevin Hanks (MIC 49) Mr. John Thiella (MIC 73) Mr. Marc Alviso (MIC I 01) Mr. Chris Lee (MIC 101) Ms. Leila Hellmuth (MIC 43) CPPM_2_7_8_EDMcmo.docx
-2-
March 8, 2016
IRIS LEAD SOURCE
230.070
The Lead Source Subsystem was developed to track the results of various special
programs and pilot projects undertaken by the BOE. The Lead Source Subsystem is
comprised of Lead Source and Lead Source Sub-types that enable the BOE to capture
and identify revenue and payments resulting from a specific program or project. This
is accomplished by attaching a Lead Source and Lead Source Sub-type to an account
or a Financial Obligation (FO) in IRIS. By doing so, reports reflecting revenue and
payment information related to a specific program or project can be generated.
The Lead Source and Lead Source Sub-type should be assigned to accounts or
liabilities established from the results of efforts of a special program or project team
(“responsible team”), for example, Statewide Compliance and Outreach Program
(SCOP), U.S. Customs group, or Special Taxes project teams.
Lead Source and Lead Source Sub-type should be assigned:
•
•
To an account, when a new permit is issued that will result in previously
unreported revenue being reported to the BOE.
To an audit, field billing order, or other FO, generated as a result of the
development of the lead by a responsible team and used to determine a liability
or offset a payment.
Lead Source and Lead Source Sub-type should not be assigned:
•
•
To a new permit issued to correct an ownership or other situation for a
business, in which revenue was routinely being reported.
To an FO selected and assigned for audit through the annual audit selection
process. However, lead information relating to an account selected and
assigned for audit should be forwarded to the auditor conducting the audit.
Lead Source and Lead Source Sub-type for Audits:
• If a lead exists for an account that has been selected for audit, but still
unassigned, the responsible team should contact the district or controlling unit
of the account to determine whether the account will be assigned. If the audit
is not assigned, the lead should be referred to the District Administrator
requesting a review of the lead information. If the account is assigned as a
result of the responsible team lead information, then the lead source
information should be assigned to the audit FO. However, if an account was
already assigned, the lead information should be forwarded to the auditor
without a request to assign the lead source information to the audit FO.
• If a lead exists for an account that has not been selected for audit, the
responsible team should refer the lead to the District Administrator with a
request that if the account is assigned for an audit as a result of the lead
information, then the responsible team lead source information should be
assigned to the audit FO.
To assign a Lead Source and Lead Source Sub-type:
• Lead Source and Lead Source Sub-type can be assigned to an account or FO by
accessing the Maintain/Inquire Lead Source Information screen (LSR ML) in
IRIS. When assigning Lead Source and Lead Source Sub-type information for a
new account, it is important to use an accurate Report Start Date and Report
End Date.
•
•
•
The Report Start Date is the date that revenue and payment information, posted
to a new account, becomes eligible for inclusion in revenue and payment
reports. Unless instructed otherwise, it should be the same date as the account
creation date. Using a Report Start Date that is after the account creation date
will result in delinquent return information and payments being excluded from
the revenue and payment reports.
The Report End Date is the date for which revenue posted to the new account is
no longer eligible for inclusion in the revenue and payment reports. Since
special programs and pilot projects typically have a two year evaluation cycle,
the Report End Date should always be two years after the Report Start Date,
unless instructed otherwise.
The Report Start Date for a closed out and reinstated account is the date the
account was reinstated (re-opened).
Note: Report Start and Report End dates are not needed when assigning Lead
Source and Lead Source Sub-type information to a specific FO, since the FO will
always be included as revenue.
Responsibilities:
• All Lead Source referrals to the district or Headquarters (HQ) program area
should clearly state which Lead Source and Lead Source Sub-type should be
assigned.
• It is the responsibility of the district or HQ program area that receives the
application or referral for audit from the responsible team, to timely process the
application or referral, and assign the Lead Source and Lead Source Sub-type.
If the application or referral cannot be processed, it is the responsibility of the
district or HQ program area to contact the responsible team and explain why
the work cannot be completed and return the work if necessary.
Revenue and Payment Report:
• The Revenue and Payment Report was designed to report on a specific Lead
Source and Lead Source Sub-type or for an entire Lead Source group. The
report is generated from IRIS through the reports sub-menu in the LSR library.
It can be requested for a specific TAT (e.g. SR) or a group of TATs (e.g., all Sales
and Use Tax TATs). The report may also be sorted by TAT and/or between
existing and new accounts.
• The report may be requested for a specific period of time and will automatically
generate an accompanying fiscal yearly report, whenever a report is requested.
The report is separated into self-assessed and BOE-assessed categories, and
will provide tax, interest, penalty, and payments, identified to a Lead Source
and Lead Source Sub-type.
Activity Report:
• The Activity Report was designed to provide a history of user activity pertaining
to Lead Source and Lead Source Sub-type changes made to an account or FO.
• The report is generated through the Lead Source Activity Report screen (LSR
RA). The report can be requested for a specific user or for a specific office and
can be requested for a specific TAT or TAT group.
• The report will display the before and after description codes, user executing
the change or deletion, date, and reason the Lead Source or Lead Source Subtype was changed or deleted.
THE DELINQUENCY PROCESS
708.020
Periodic Delinquencies
Failure to file a tax return, even a tax return representing a partial period, constitutes
a “periodic” delinquency. In sales and use tax programs, the failure to file a
prepayment form appears in the delinquency subsystem in IRIS but does not
generate a Notice of Delinquency.and automatically generates notices for delinquent
sales and use tax prepayments. (Exceptions to this are found in some special taxes
programs). A delinquent prepayment does not result in a citation or revocation notice
being generated. However, a delinquency assignment for staff to work is created in
the Automated Compliance Management System (ACMS).
Through the use of an automated process called the “delinquency control cycle”, (see
CPPM 550.020), IRIS identifies taxpayers who have not filed tax or fee returns and
controls the preparation of delinquency notices and various reports pertaining to
these accounts. The table below provides a summary of the new delinquency and
revocation process. The sales tax delinquency control cycle consists of:
1. Establishing a delinquency record approximately four weeks after the due date
of the tax return.
2. Issuing a delinquency notice approximately six weeks from the due date of the
tax return.
3. Mailing the taxpayer a Notice to Appear — Revocation Proceeding approximately
60 days after issuing the delinquency notice.
4. Mailing the taxpayer a Notice of Revocation approximately 90 days after issuing
the Notice to Appear — Revocation Proceeding, and, if the account is revoked.
5. Retaining the record until the delinquency is cleared and the permit or license
is reinstated or closed out.
Action
Approximate Days
Day 14 (via email or mail) after
First late notice
return due date
Second late notice
Day 40 after return due date
Enters collector’s ACMS work list
Day 50 after return due date
Revocation notice
Day 100 after first late notice
Referral to Investigations Division
Day 220 after first late notice
Generally accounts should remain in revoked status for at least 120 days before being
referred to the Investigations Division. Accounts may be referred earlier depending on
the account’s compliance history, size of liability, or concern for the safety of district
staff. The 120 days waiting period will remain in effect to provide the taxpayer an
opportunity to clear the account before proceeding toward criminal prosecution.
PARTNERS IN BANKRUPTCY
740.210
When two or more persons are jointly responsible for payment of a BOE tax liability
(partnership accounts, husband and wife co-ownership accounts, etc.), SPS Special
Operations Branch (SOB) will be responsible for determining which liabilities, if any,
have been discharged by a joint debtor’s bankruptcy discharge. If all joint debtors
have discharged liabilities, the liabilities may be legally adjusted. If not, the tax
liability should not be adjusted, nor should the Discharge From Bankruptcy (DFB)
status code be set. If a lien release is appropriate for a discharged joint debtor, but
not for all joint debtors, a partial release as to the affected person should be issued.
A partner that is not in bankruptcy is not protected by the automatic stay of a partner
in bankruptcy. Collection can continue on the partner not protected by the automatic
stay. When a partnership consists of a married couple, marital community property
and funds will be protected from collection by the automatic stay of 11 U.S.C. Section
362(a). It does not matter whether one or both of the spouses file for bankruptcy.
Most or all of the marital community's property and funds will belong to the
bankruptcy estate pursuant to 11 U.S.C. Section 541(a)(2)(A). Case specific questions
about community property should be directed to SOB.
Demand Notices for Non-Bankrupt Partners
SOB staff can create and issue a demand notice in IRIS to an individual non-bankrupt
partner whose partnership account has a legal designation. The demand copy that is
addressed to the partnership, as well as the copy belonging to the partner(s) who filed
bankruptcy, will not be produced if a legal designation on the partnership account
exists. If a demand notice is created and one or more partners are ineligible to receive
the demand due to the legal designation on the partnership account, the demand for
the ineligible partners will reject and an assignment (BNK) will be created in
assignment control for follow-up by SOB supervision. If a demand notice is created
and one or more partners are ineligible to receive the demand due to discharged
liabilities, the demand for the ineligible partners would reject and an assignment
(DFB) will be created in assignment control for follow-up by SOB supervision. If a
notice is suppressed for either reason, the appropriate rejection code will be displayed
on the DIF BN screen.
Browse Client/Difference Relationship Screen (DIF XB):
The DIF XB screen displays Difference Client Relationships for a selected Client ID.
All account and difference information belonging to the identified client will be
displayed. Query fields allow the list to be positioned at a selected relationship type or
account number. If a relationship type code is entered in the “Rel” seek field, the list
is displayed starting from the relationship type code. If an account number is also
entered in the account seek field, the list is displayed starting from the account
number. A user can then select a record that will navigate him or her to the
Maintain/Inquire Difference Client Relationship screen. The DIF XB screen is
available to all BOE staff.
The Browse Client/Difference Relationship screen has a second panel. The second
panel provides additional information (e.g., legal case ID, case name) that will help you
find the desired record. Press function key F20 in order to access the second panel.
The additional information will only appear if the user has entered the legal case ID
and case name for the relationship.
Maintain/Inquire Difference Client Relationship (DIF XM):
The DIF XM screen allows a Client Difference Relationship to be entered or viewed. A
Client Difference Relationship specifies the type of relationship between the two
entities and the date range the relationship was effective. The system will check for a
relationship between client and difference and process according to the relationship’s
existence at the time. For example, if a partner’s liability is discharged in bankruptcy,
then a demand would not be sent to the partner.
If the Client Difference Relationship is ended, the relationship is no longer in effect for
any process that runs after that update. To reestablish the relationship, a new
relationship must be created. This new relationship may have the same effective date
as the previous record’s end date. It may also have the same effective date as the
previous record, if the previous record ended the same day. The DIF XM screen may
only be accessed and modified by SOB staff.
District Offices and Special Taxes and Fees:
District office and Special Taxes and Fees staff will often enter an account into the
legal subsystem when a legal action is pending (Bankruptcy, Probates, Assignments,
etc.). The responsibilities and procedures of data entry will remain the same with one
exception. Since partners are tracked on an individual basis, the bankrupt partner’s
Taxpayer Identification Number (TIN) must be entered. The partnership’s TIN should
no longer be linked to the legal action unless the entire partnership has filed
bankruptcy. It is imperative that the bankrupt partner’s TIN be entered so the notice
process will be effective and accurate.
This functionality will allow the tracking of an individual partner’s personal liabilities
by providing a comprehensive listing of accounts, differences, and effective dates at
the client level. In addition, the system will automatically and accurately determine
who is eligible to receive a demand based on the pending legal actions of partnership
accounts. This will allow BOE to pursue these types of partnership liabilities without
violating the automatic stay and will uphold the goals and objectives of RUPA and
BOE.
FARM EQUIPMENT AND MACHINERY
820.091
Under Regulation 1533.1, Farm Equipment and Machinery, purchases of vehicles
designated as an implement of husbandry in Chapter 1, Division 16 of the Vehicle
Code may qualify for a partial exemption from the sales and use tax. To qualify for the
partial exemption, a qualified person must use the qualifying vehicle exclusively in
agricultural operations.
When a qualified person purchases a new or used qualifying vehicle from a person
licensed or certificated pursuant to the Vehicle Code as a manufacturer,
remanufacturer, dealer or dismantler (dealer), the qualified person should give a
partial exemption certificate to the dealer. However, when a qualifying vehicle is
purchased from a seller other than a dealer, for example, an out-of-state vehicle dealer
or an in-state non-dealer, and the purchaser does not have a seller’s permit, the
purchaser must pay the use tax when they register the qualifying vehicle with the
DMV or self-report the use tax to the Consumer Use Tax Section (CUTS) or local
district office. If the qualified purchaser has a seller’s permit they can report and pay
the use tax on their sales and use tax return when the property is not subject to
registration with DMV.
QUALIFYING PERSONS
Persons who qualify for the partial exemption provided by Regulation 1533.1 must be
engaged in an agricultural operation described in Standard Industry Classification
(SIC) Codes 0111 to 0291 or perform activities described in SIC Codes 0711 to 0783 in
addition to being engaged in a line of business described in SIC Codes 0111 to 0291.
A qualified person also includes someone that assists qualified persons by performing
an agricultural service, as described in Major Group 7 of the SIC Codes, as an
employee or on a contract or fee basis. SIC Codes 0111 to 0291 describe businesses
that are engaged in farming and ranching. SIC Codes 0711 to 0783 describe
businesses that are engaged in agricultural services to be limited to soil preparation,
crop services, veterinary services, animal services, farm labor and management
services, and landscape and horticultural services.
A qualified person does not include a person operating a garden plot, orchard, or farm
for their own use. Any vehicles or equipment purchased for these applications are not
considered purchased for a qualifying use and should not receive the partial
exemption from tax.
Please Note: The enacting statute for the partial exemption on sales of farm
equipment and machinery, Revenue and Taxation Code section 6356.5, requires the
SIC Codes be used to define a qualified person. To ensure consistency with the
statutory requirement, Regulation 1533.1 also uses SIC Codes to define a person that
assists a qualified person. However, SIC Codes are no longer used on federal income
or state franchise tax returns to code a business activity. The standard is now the
North American Industry Classification System (NAICS). Any current state franchise
or federal income tax return provided by a person as documentation of being engaged
in a farming activity will use the NAICS code to describe the person’s business
activities. (See the Proof of Exemption section.) If staff has questions concerning the
eligibility of a NAICS code, a cross-reference between the SIC and NAICS codes can be
found at www.census.gov/eos/www/naics/concordances/concordances.html.
The following examples illustrate the concept of “qualified persons.”
Example 1:
Farmer Bob grows tomatoes on his 2,000-acre farm and is a
qualified person for purposes of Regulation 1533.1. Farmhand Jake is Farmer
Bob’s employee and assists Farmer Bob in planting and harvesting tomatoes.
Farmer Bob is very busy so he sends Farmhand Jake, on his behalf, to buy a used
qualifying vehicle from Farmer Steve. Farmhand Jake is a person that qualifies for
the partial exemption because he is a person that assists a qualified person as he
performs agricultural services as described in SIC Codes 0711 to 0783, as an
employee of Farmer Bob.
Example 2:
Farmer Bob decides he is not going to do his own fertilizing this
year. Farmer Bob contacts The Giant T’Mater Fertilizing Company and contracts
with them to fertilize his tomatoes this year. This is a big contract for The Giant
T’Mater Fertilizing Company, so they decide to buy a new qualifying fertilizer
applicator rig from an out-of-state retailer for use exclusively in agricultural
operations. The Giant T’Mater Fertilizing Company performs agricultural services
described in SIC code 0711, soil preparation services, and therefore qualifies as a
person that assists a qualified person.
Example 3:
Farmer Bob’s mom is ill, so next year he will contract out the
management of the tomato fields, including cultivating and harvesting, with
Bestfriend Farm Management Co. Bestfriend Farm Management Co. buys a used
qualifying vehicle for use exclusively in getting around on the farm property and to
check irrigation machines. Bestfriend Farm Management Co. is a person that
assists a qualified person (SIC 0762) and therefore qualifies for the partial
exemption.
Example 4:
Citizen Jeff works a vegetable patch in his extra-large backyard.
He consumes most of the vegetables but occasionally sells produce at a roadside
stand. He does not report such sales and expenses on his federal income tax
return. Citizen Jeff’s purchases do not qualify for the partial exemption because he
is not a qualified person. He is growing produce for his own use and is not
engaged in a business for purposes of Regulation 1533.1.
QUALIFYING VEHICLES
Regulation 1533.1 states that an “implement of husbandry” is a vehicle used
exclusively in the conduct of agricultural operations. It also states that an “implement
of husbandry” does not include vehicles designed primarily for transportation of
persons or property on the highway, unless specifically designated as such by
provisions of the Vehicle Code.
Vehicle Code section 36005 provides a list of vehicles that qualify as “implements of
husbandry.” This list is attached to Regulation 1533.1 as Appendix A. Assuming the
person claiming the partial exemption can document they are a qualified person, staff
should allow the partial exemption for the types of vehicles listed when used
exclusively in the conduct of agricultural operations or as otherwise indicated.
There are occasions when vehicles not specifically identified in Appendix A may qualify
as farm equipment and machinery for the purposes of the partial exemption. For
example, while the Vehicle Code states that, in general, vehicles designed to transport
persons or property on a highway are not qualifying vehicles, such vehicles are
included in Vehicle Code section 36005 as implements of husbandry. It should be
noted that this section limits their on-highway use to short distances that are
incidental to farming, not for compensation, and no more than two (2) miles.
Additionally, the DMV will occasionally qualify vehicles not listed in Vehicle Code
section 36005 as implements of husbandry. This determination is made by the DMV’s
Special Processing Unit and is based on a review of the vehicle’s use and equipment
requirements.
Depending on their use, unlisted vehicles such as All Terrain Vehicles (ATV) and
agricultural aircraft (crop dusters) may be considered qualified vehicles if used
exclusively in an agricultural operation to traverse an agricultural property to check
fencing, round up livestock, check cattle and crops, examine watering and irrigation
systems, or similar activities required in an agricultural operation. When used
exclusively for these purposes, the purchase of the ATV qualifies for the partial
exemption provided all other requirements of Regulation 1533.1 are met. Similarly,
crop dusters used exclusively for seeding, fertilizing, and crop protection will qualify
for the partial exemption.
PROOF OF EXEMPTION
When a qualifying vehicle is purchased from a person registered with the BOE to
collect tax, the purchaser must complete a partial exemption certificate in support of a
claimed partial exemption. A sample of the recommended partial exemption certificate
can be found in Appendix B of Regulation 1533.1. The purchaser is not required to
use the recommended partial exemption certificate as long as the certificate provided
by the purchaser has all of the elements for the partial exemption certificate outlined
in Regulation 1533.1.
Purchasers that report use tax to, or claim a refund from, the BOE must also provide
evidence of being engaged in one of the required SIC codes. Acceptable documentation
includes current federal income or state franchise tax returns which include Schedule
F. If the purchaser did not file a Schedule F, staff should check the NAICS code on the
return to ensure it matches one of the activities qualifying for the partial exemption.
(Refer to Regulation 1533.1.)
It is possible that a person who assists a qualified person will not have a NAICS code
that matches one of the activities qualifying for the partial exemption. If the
purchaser cannot provide a Schedule F or appropriate NAICS code, other
documentation, such as employment or service contracts, may be accepted.
DEPARTMENT OF MOTOR VEHICLE (DMV) CUSTOMERS
DMV cannot process partial payments of the use tax on behalf of the BOE. Therefore,
purchasers have two options for reporting and paying use tax:
OPTION 1:
Pay the non-exempt portion of the tax to the BOE (CUTS/district
office) and obtain a BOE–111, Certificate of Tax Clearance, to present to DMV to
allow registration.
OPTION 2:
Pay the full amount of use tax to the DMV and apply for a refund
of the state exempt portion directly from the BOE.
PROCEDURES
District Offices
If a taxpayer is claiming the partial tax exemption, direct them to register
electronically using the kiosk. When the taxpayer electronically registers, a source
information file (SIF) number is generated, which will be used by CUTS to create an
account.
After the taxpayer electronically registers, they will still need to submit their claim by
completing the BOE-106 as normal. Staff should ensure the BOE-106, Vehicle/Vessel
Use Tax Clearance Request, is completed with all pertinent information as outlined in
CPPM section 840.005, Voluntary Payments. The clearance (BOE-111) should be
issued only if the purchaser provides supporting documentation that the purchaser is
engaged in agricultural operations. District office staff should forward the documents
to CUTS and reference the SIF number created during the online registration process.
The partial exemption should generally not be allowed for a vehicle designed to haul
persons or property on a highway, but not specifically listed in Vehicle Code section
36005. A vehicle whose existing design is primarily for the transportation of persons
or property on a highway, such as a pickup truck, trailer, truck tractor or truck
tractor and semi trailer combination, does not qualify for the partial exemption, unless
such a vehicle is otherwise specified as an implement of husbandry in the Vehicle
Code Section 36005. To qualify for the partial exemption, the purchaser must obtain
a determination from the DMV that the vehicle qualifies as an implement of
husbandry. A registration slip showing this determination must be presented to the
BOE when the tax is paid or the refund is claimed.
District staff must also check IRIS to see if there is an existing CUTS SIF or account
number (SA/SB UT XX-XXXXXX). To search for an existing CUTS account, go to the
CUT SS screen in IRIS. Enter either the Vehicle Identification Number (VIN) or vehicle
license plate number in the appropriate field and press enter. To search for an
undocumented vessel, use the hull ID number or vessel license number.
Requests involving aircraft and documented vessels (vessels registered with the USCG)
should be referred to CUTS for review. BOE-111’s are not issued on transactions
involving aircraft or documented vessels.
Consumer Use Tax Section (CUTS)
If the taxpayer is claiming the partial tax exemption, accept the payment of tax less
the amount of the partial exemption, then process the BOE-111, Certificate of Tax
Clearance, request as normal. Staff should ensure the BOE-106, Vehicle/Vessel Use
Tax Clearance Request, is completed with all pertinent information as outlined in
CPPM section 840.005, Voluntary Payments. The clearance should be issued only if
the purchaser provides documentation that the purchaser is engaged in agricultural
operations.
CUTS staff must also verify whether there is an existing SIF or account number as
instructed above.